Business property insurance covers your physical assets from unexpected losses like fire, theft and wind. Business property coverage can include: buildings, your business personal property and equipment within those buildings, exterior fixtures, inventory and the loss of income if you can’t operate your business due to a claim.
What does business property insurance cover?
Collision is a type of auto insurance coverage that helps pay to repair or replace your car if it’s damaged in an accident. This type of coverage helps protect you financially from the expense of vehicle damage as the result of a covered accident. Whether it’s a fender bender, side swiping a guardrail or backing into a tree, collision coverage will help you get back on the road.
What does business property insurance cover?
Your business property isn’t just monetarily valuable, it is essential for keeping your business operational. Business property coverage protects your valuable physical assets from unexpected loss and can help you recover more quickly after a loss. This coverage can help cover the cost to repair or replace damaged, destroyed or lost property such as:
- Tools & equipment
- Tenants improvements & betterments
- Inventory & supplies
- Computers, printers
- Outdoor property like fencing, signage and trees
- Other business personal property
Business property coverage protects against a variety of losses. Some common covered causes of loss include: fire, windstorm, hail, theft, vandalism, explosion and even building collapse due to the weight of snow.
Business income is included on most property policies and covers a company’s loss of income due a temporary suspension of normal operations as a result of damage to physical property. If the damage is severe, it will likely take time for the business to resume normal operations. While the business is being restored, called the waiting period, revenue can decline significantly or cease altogether.
Example: A fire breaks out at your clothing store and causes damage to the building and your inventory. While the building is being repaired you are not able to operate your business and you estimate it will take several months to recoup your lost inventory. Business income coverage can help you cover mortgage and rent payments, employee payroll and loss of profit during the restoration period.
There are additional coverages available by endorsement or enhancement on business property policies. Your insurance agent can help you identify the coverages that are important to your business operations to tailor your coverage to meet your needs. Below are a few examples of common additional coverages available for business property policies:
- Accounts receivable
- Valuable papers & records
- Sewer drain and backup
- Building ordinance or law
Actual cash value vs replacement cost
Business property is usually valued on either an actual cash value (ACV) or a replacement cost (RC) basis.
- Actual cash value is the replacement value less depreciation
- Replacement cost is the replacement value with like kind or quality
Many insurance carriers require that a certain percentage of the building value be insured to receive full claims coverage. This is called coinsurance. Coinsurance is intended to discourage the undervaluing of business property. It is important to select coverage that is adequate to cover the true value of your business property. If your insurance limits aren’t enough to cover a claim, your business may be required to pay for the loss.
Example: You policy includes an 80% coinsurance clause. You insure your building for $500,000, which is only 50% of the actual value of the property. You suffer a covered loss of $400,000. Even though this is less than the insured amount of $500,000, the insurance company will only pay for 50% of the loss, or $200,000.
Many business property policies include an inflation guard, represented as a percentage on your building, business personal property or inventory. An inflation guard is intended to help the value of your business assets keep pace with rising construction and replacement costs.
Example: Your building is insured for $500,000 and includes a 6% inflation guard. At your next policy renewal, your building value will be increased by 6% for a total value of $530,000.
What doesn’t business property insurance cover?
Insurance coverage is not intended to cover every type of loss and business property coverage is no exception. For example, business property policies tend to exclude damage to property caused by natural disasters like earthquakes, floods, tornadoes and hurricanes. Coverage for these types of losses may be available as an enhancement to an existing property policy or as a standalone policy. Business property also does typically cover damaged resulting from short circuits and power surges as these types of losses would be covered by an equipment breakdown policy. Other common exclusions include:
- Employee theft as this would be covered by crime insurance
- Goods in transit would be covered by an equipment or installation floater policy
- Customer’s property can be covered by adding care, custody & control coverage general liability insurance
- Normal wear & tear is excluded from most insurance coverages
Who needs business property insurance?
Business both large and small can benefit greatly from investing in business property coverage. If any of the below applies to your business, it makes sense to consider purchasing coverage.
- Owns a building, store, office, warehouse
- Has essential business documents (like account records)
- Rents a building, store, office, warehouse
- Owns or rents equipment and tools
- Has outdoor property (like fencing or signs)
- Owns or rents business personal property (like computers or furniture)
- Has products or inventory
Business property insurance may also be required by a landlord (if you rent your space) or by a lender. Although landlords typically carry insurance coverage on their building, your lease may require you to insure the building you rent. It is also important to note that landlords do not usually take responsibility for insuring business property or tenant improvements and betterments in the rented space. Make sure you read and understand the requirements of your lease as they usually outline who is responsible for insuring what.
Does my homeowner’s policy cover my business personal property?
A standard homeowner’s policy may offer some overage for your business personal property but it is often not sufficient or it may offer no coverage at all. If you have a home-based business, you’ll want to review your homeowner’s policy with your agent to determine if you need a business property policy to adequately protect your assets.
What does business property coverage cost?
A variety of factors are used to calculate the premium for business property coverage. The biggest factor is the value of your business assets. It is a good idea to keep an inventory of all physical assets located at your property to help determine an accurate value and in the event of a claim. Other factors include: location, construction of the building you own or rent, the occupancy of the building and risk management features (like security systems and fire sprinklers.) For example, an all brick building located less than a mile from the fire station that has a central station burglar alarm is going to be less expensive to insure than a frame building located 5 miles from the fire station that has no burglar alarm. Likewise, occupancies like an auto repair shop tend to have higher property premiums than office space occupancies.